The data from the Council of Mortgage Lenders (CML) was described as a "shocker" by one broker, as the figures also failed to show the usual autumn pick-up in the market after August, traditionally a quiet month.

The CML, which warned that the outlook for house prices was more uncertain than usual, used the slump in the market to make one last plea to the government before the comprehensive spending review not to cut schemes for borrowers in difficulty.

Chancellor George Osborne appeared to heed the call, extending the concession for mortgage interest to January 2012, at a cost to the exchequer of £90m over the next two years.

The extension of help with mortgage interest payments was made after the CML reported gross lending was £12bn in September, down from £12.1bn in August and 7% lower than September 2009. The last time lending was lower was in September 2000, when just £10bn was advanced.

Brian Murphy, head of lending at mortgage broker Mortgage Advice Bureau, said: "September's figures are a shocker – down on August, usually the quietest month of the year, down on last September when we were still in the grips of recession, and no sign of the traditional post-summer bounce in mortgage activity, which doesn't bode well for the rest of the year and early 2011."

Brokers had been braced for a slow autumn because of the anxiety caused by the spending review and the impact it would have on public sector workers, but they had hoped for a pick-up in activity later on.

Michael Coogan, director general of the CML, said: "Lending volumes do not seem likely to increase substantially towards the end of the year. Funding pressures on lenders remain, and the practical implications of government and public spending cuts are beginning to emerge, with a resulting impact on consumer confidence.

Mortgage brokers were now warning that a "long, hard winter and further downward pressure on house prices looks inevitable", Murphy added.

His prediction of further falls in house prices was echoed by Howard Archer, chief UK and European economist at Global Insight, who said the weak lending data was likely to lead to falling house prices. "Specifically, we expect house prices to trend down relatively gradually over the final months of 2010 and in 2011 to lose around 10% in value," Archer said.

The most recent data on house prices has provided a conflicting picture for September. Halifax reported that house prices fell by a record 3.6% during September – the biggest fall in 27 years – although Nationwide had house prices rising 0.1% in the same month. The CML tried to explain these differences in a new report which warned that the outlook for the housing market was more uncertain than usual and that there would be more volatility in house prices than there has been in the past 40 years.

The CML noted that the house price indices that had been relied on in the past were based on activity levels running at 40% of previous peaks and therefore made monthly comparisons difficult. But it said: "It is clear and unequivocal that prices rose sharply in the period to August 2007, fell calamitously in the second half of 2008, showed a modest recovery through to the middle of this year and have subsequently weakened".

The CML notes that while more houses are being put on the market, there has been a reduction in demand because of uncertainty about the economy. But it does not expect this over-supply of houses to continue as would-be sellers take their properties off their market and thinks continued monetary easing by the authorities should help demand.

Despite the over-supply, the property website Rightmove reported this week that asking prices jumped by more than 3% during October, with houses in London seeing the biggest rise, as sellers failed to adjust to the new market conditions.

The average person putting their home up for sale in England and Wales increased their asking price by 3.1%, or just over £7,000. All areas of the country saw a jump in asking prices during the four weeks to October 9, with London leading the way, with new sellers raising their prices by 5%. This was followed by the east Midlands, where they increased them by 4.3%. But asking prices in the north-west and Wales, fell by 2.3%, and 0.6% respectively.